Whether you're a Friedman-ite or not, I think it's a waste of time waiting for the government (or the Fed) to solve the ongoing economic nightmare. As the tepid economic "recovery" fizzles to a stall and an ideological civil war rages in Washington, millions and millions of otherwise hard-working Americans wonder if they will ever be employed again. Clearly, we need a jobs solution NOW! I have a plan to restore the U.S. economy to full employment. It's a complex private-sector mechanism that involves giving another dose of financial nitroglycerin to Wall Street hoping that this time they won't nuke the economy. In exchange, we get lots and lots of jobs. Read the plan here: http://jpbulko.newsvine.com

The Government has misused it's power to control fiat money by inflation (which actually means an increase of the money supply) which debases the dollar in comparison with other goods, thus creating price inflation. It is extremely saddening that policy makers do not recognize this problem because they keep diagnosing it incorrectly.

Many economists have advocated for a more effective government or a more specialized/smaller one: M. Friedman, L. Von Mises, F. A. Hayek...Yet, these economists have been discarded as we have moved into the unrealistic mathematical realm of neoclassical and neokeynesian economics.

It's time the teaching of economics was changed from a pure mathematical basis to a more philosophical, sociological and PROPER economic basis (the study of human man). It is the misled teaching of economics which leads to wrong policy measures in the future.

The economist's comment section is an embarrassment. It is a play ground for left-wing trolls -- who are economically illiterate enough to support rent controls and minimum wage. Consider this troll "forsize," who doesn't have the literacy to complete a sentence or address anything said in the article. This troll went straight to the comment section, probably, without even reading the heading. Apparently his comment is the most recommended.

The more trolls there are, more credibility is added to Milton Friedman's ideas. Friedman demolished statism and Keynesian theory. State worshipers have problems reconciling their paternalistic world view with reality.

To the author of this article: "free market conservative" or "free market right" is a contradiction in terms. The right-wingers aren't for free markets. They are for subsidies for their corporate buddies in the oil industries and the corporate jet industries. Michelle Bachmann supports farm subsidies and is herself a welfare queen. Mitt Romney babbles on about free enterprise and supports ethanol subsidies. Bush expanded Medicare -- that pathetic program with trillions in unfunded liabilities. There is a difference between rhetoric and practice. Here are free market ideas espoused by Milton Friedman, a classical liberal, but systematically ignored by teabaggers:

- Abolishing occupational licensing.
- Abolishing the Federal Reserve.
- Abolishing all protectionist & anti-competitive measures and barriers to trade.
- Replacing all bureaucratic welfare programs with a negative income tax.
- Open borders with Mexico, and pretty much every other country, with no eligibility for immigrants to enroll in welfare programs or get negative income tax.
- Putting in place a catastrophic insurance system and a system of medical savings accounts and enhancing competition in the medical insurance industry.
- Abolishing all forms of corporate welfare.
- Abolishing all bailouts.
- Ending the drug war.

The biggest threat to free market capitalism is not the left-wingers; not the Keynesians; it's not even the communists. It's the old, ugly, white-nationalist teabaggers, who distort every free market principle and scare the s&*% out of brilliant young people.

well not really. The commentary very loosely describes right of center. There are free market advocates that after reading Friedman would advocate for more monetary action and even rule based intervention but the other movement that is inherently against monetary expansion has little to do with Milton Friedman or even Austrian economics as a whole.

@restrained radical wrote : "The problem is that the money isn't being used" It is but not in the US, its been used to fuel a commodities boom, and diversification away from the USD. In other words the opposite of what the Fed intended.

Really? If only the Fed could have printed a couple of trillion dollars and the Administration could have run trillion-dollar-plus deficits... Wait a minute: isn't that what has been happened for the past 3 years?

You can stop blaming those devilish conservatives and wonder what Friedman would have done - everything you're advocating has been tried with no success. And the reason is simple: people are deleveraging and no amount of free money will force them to consume.

And all that liquidity lying around is like gasoline - fine when the money velocity is low, but when the economy accelerates even a bit, we run the risk of igniting inflation. The Fed will probably not be able to shrink its balance sheet fast enough. And THAT is why "conservatives and libertarians [are] so uniformly hawkish about inflation".

Finally, you take issue with the expression "debasing the currency", but I cannot imagine why. Don't you think it is eloquent that the dollar has not been able to appreciate against a comatose Euro? Or that devaluation against the more robust Swiss Franc and the Brazilian Real (who would have guessed it?) this year alone has been enormous? Debasement indeed... Oh, wait, perhaps the markets is composed solely of "conservatives and libertarians".

All this neglects the role of social groups behind economic policy options. If US right-wingers are so decidedly against inflation it is unlikely that the reason is merely some kind of intellectual debate, as if they lived in some kind of Arcadia. The attitude towards inflation and, more generally, towards what kind of economic policies are needed depends mainly on what kind of economic interests support different policy options, and benefit from them. Economic theories, whether by Milton Friedman or others, provide an intellectual and ideological framework; but it would be naive to believe that most ordinary people spend their time wondering about ideas and, whatever these are, that their material interests are put aside the moment they make political choices.

The right questiont to ask is: whose interests are represented by US conservatives? What are their foundations in social classes?

For those trying to talk up the inflation rate, there is about zero wage pressure. If prices increase people will just take a cut in purchasing power.

I would be interested in knowing if any Friedman partisan or Austrian School enthusiast has any comment on asset inflation?

Seems Greenspan always noted it, and then didn't do anything. Considering it was the source of two busts - circa 2000 with the stock marketing; and 2008 or so onwards with the housing market - Would be interesting to hear from inflation hawks.

Or are they only inflation hawks when it comes to consumer prices?

Last point - The quadrupling or quintupling of oil prices in the 1970s didn't have an impact on inflation? Seems that energy was overlooked. Similarly, what about union power to drive up wage pressures?

Otherwise, I believe debt as a percentage of GDP was considerably lower under Carter than it was today, or for the past 10 years.

Inflation is wealth redistribution from savers to spenders, deflation does the opposite. Each group naturally favors monetary policy that favors its side. It is government’s job to adopt policies favor the minority group, otherwise you will end up with a nation of debtors or a nation of hoarders, neither can last long. But to adopt monetary policies that’s against the wishes of majority is difficult in a democracy.

M2 is growing fairly steadily but bank reserves have skyrocketed. There's currently $1.6 trillion in excess reserves. QE isn't working as traditional monetarism envisions because the vast majority of it is sitting idle. I think Bernanke is disappointingly surprised that lending hasn't picked up yet. The 10-year TIPS spread suggests a 2.37% long-term rate of inflation so we have some wiggle room in theory. But $1.6 trillion in excess reserves is scary. I have no idea if more QE will work. If it doesn't, the inflation prospects are frightening.

Was it Keynes who said that all politicians were slaves to some dead economist? Perhaps he meant to say that all politicians (and traders and marketers and it seems businessmen) are slaves to their caricature of a half understood dead economist. Friedman is invoked to scare people about inflation because "inflation always and everywhere is a monetary phenomenon". Thus more money means more inflation, no matter what else is happening. This no matter how sophisticated Friedman's monetarism actually is. But we are not really interested in theory, we are interested in applying theory, in making decisions.

People making decisions take a complex simplification of reality (economics) and then further simplify it (usually distorting it) in order to make decisions that are meant to have general effect while knowing that there will be unintended consequences. That is if they are very wise. The rest of us take a belief (more money always equals more inflation) and impose it on the world (which does not really correspond to that belief) and wonder why things did not turn out precisely as we predicted.

I think the third reason conservatives are so hawkish on inflation is that so many of them are older. High inflation looks a lot more threatening if you're trying to squirrel away enough cash to retire. What I would like to know is, why is EVERYONE scared of negative inflation? It seems to me that a country with such a big borrowing problem could use a little incentive to save.

I should probably just thank Will for calling my and George Selgin's views "sophisticated" and leave it at that. But it isn't quite accurate to say that we "defend rule-based inflation-targeting policies not all that different from Mr Sumner's neo-monetarist nominal GDP-targeting rule". First and foremost, we defend free banking. (As did Milton Friedman in the 1980s, by the way.) Free banking would naturally produce an approximation of nominal income stability. As a second-best in a central banking fiat money world, then, we have (following Hayek) defended a stable nominal income target (not inflation targeting) in principle. "In principle" meaning, if there were decent hope that a central bank assigned the task wouldn't muck it up.

Will is right about the important contrast between Friedman and Rothbard. But that contrast isn't accurately captured by associating Friedman with "inflation doves" side and Rothbard with "inflation hawks" as those terms are usually understood. Friedman was an inflation hawk -- he preferred zero to any positive secular inflation rate -- even in his 1960 Program for Monetary Stability where he sanctioned central banking and proposed a slow steady rate of money creation. (In the 1980s he started calling for zero Fed money creation and an end to the Fed.) I'm an inflation hawk in that sense, even when I sanction the tightly constrained money creation that a free banking system on a gold standard would produce in a case of increased "hoarding" of bank-issued money.

Another way to put this: not all money creation creates pressure for the price level to rise (inflation). Some merely relieves deflation. Friedman 1960 favored a central bank creating money to prevent any and all deflation, even falling prices due to output growth. (In 1969 and 1984 articles he favored allowing that kind of deflation.) Rothbard favored no money creation ever, beyond gold mining. Selgin and I favor a regime in which banks would automatically create money to avoid an unsatisfied demand for money, and thereby would alleviate recessions insofar as they are due to money-hoarding.

Most economists of the Austrian school _are_ categorically against expanding the money supply, at least in the sense that the Keynesian and Monetarists are. The exception to this rule are the "fractional reserve free bankers (FRFB)" such as George Selgin and Larry White, mentioned in the article. The dispute between the Rothbardian "100% reserve-ratio bankers" and the Selgin/White FRFB is possibly the most hotly debated topic in the Austrian school today.

However, you are quite wrong in supposing that even the FRFB branch of the Austrian school believes that "the money supply always needs to be adjusted to an optimum ix [sic?] that allows for continued growth without rampant inflation." The Austrians as a whole recognize the fallacy that there is "an optimum amount" of money because money is used only as a medium of exchange and thus the quantity is compatible. Even the FRFB Austrians don't want the money supply to be raised in response to economic growth, see George Selgin's "Less than Zero: The Case for a Falling Price Level in a Growing Economy." The disagreement is as to whether or not the money supply should be expanded in response to a change in the demand to hold money, where the FRFB believe that it should and the 100% reserve Rothbardians believe it should not. Here the FRFB emphasizes monetary disequilibrium theory, while the Rothbardians emphasize the microeconomic effects and problems involved in trying to offset an increase in the demand to hold money with an influx of money into the economy.

The Rothbardians also argue heavily against the arguments presented against deflation. In particular, see the Winter 2003, volume 6, number 4 issue of "The Quarterly Journal of Austrian Economics," all articles, as every one of them is on the topic of deflation.